-> checking account
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- A checking account is a type of deposit account in a bank or another financial establishment, which allows for deposits and withdrawals. Money in checking accounts is liquid, meaning that the account holder can withdraw it using automated teller machines, checks, electronic debits, etc. Checking accounts are different from other types of bank accounts because they allow unlimited deposits and repeated withdrawals. In contrast, savings accounts may limit both. There are various types of checking accounts, including student accounts, business accounts, and joint accounts, all of which offer some special and similar features. Due to the high liquidity that goes with checking accounts, the interest rate offered with them is not high.
Checking accounts are also known as transactional accounts and demand accounts. Most banking establishments offer such accounts for no fee or minimal fee. Electronic banking services today allow bank customers to set up automatic payments with their checking accounts so that their monthly expenses are taken care of. Due to the low fees of checking accounts, big commercial banks consider them loss leaders. Naturally, the aim of most financial institutions is to attract clients to use their other, more profitable products. Examples of these are certificates of deposit, mortgages, and various loans.
These transactional accounts are not to be used for the purpose of savings or earning interest. They are opened for the convenience of individual clients and businesses. Financial transactions appear in itemized lists at the client’s passbook or bank statement. Checking accounts typically allow customers to receive and make payments by cash (bank notes and coins), pre-authorized or direct debit money orders and checks. Payments can also be made by giro or direct deposit (funds transfer), a debit or ATM card, standing order, or SWIFT, which is an international account-to-account transfer.
The Banking Acts of 1933 and 1935 and Regulation Q prohibited the payment of interest on checking accounts by members of the Federal Reserve until recently. Banks have circumvented the restriction by creating different account types such as the Negotiable Order of Withdrawal. Banks that are not members of the Federal Reserve also offer interest-paying checking accounts. The Consumer Protection Act and the Dodd-Frank Wall Street Reform repealed statutes which prohibited interest-bearing checking accounts. In this way, Regulation Q was effectively repealed. As of July, 2011, financial establishments will be allowed but not obliged to offer interest-beating checking accounts.
A checking account can be opened at almost any banking institution or credit union. You can check with your local bank or read reviews of checking accounts. If you want a checking account that earns interest, you can check the offers of HSBC or ING Direct (the online checking account at HSBC and ING Direct Electric Orange Checking Account, respectively). Keep in mind that some interest-bearing checking accounts are offered with restrictions. Check what they are before you decide to open an account. Among the pitfalls you should look for are bounced check fees, minimum balance requirements, and a limited number of monthly transfers. Reward checking accounts are another type, which goes with more restrictions. While they pay higher interest, it is more difficult to qualify for them.
Once you have chosen and opened a checking account, you may want to fund it. The easiest way to do that is with direct deposit, which is a good option if you want to move funds electronically. Checks can also be deposited to a checking account so that you can cover future payments. Sometimes, you may not have enough money in your checking account. To avoid possible problems, you can use overdraft protection, which will serve as a safety net.